TEXT-S&P: North Africa to witness gradual growth in Islamic banking

Thu Sep 27, 2012 8:08pm IST

Sept 27 - Supportive socio-political factors and economic incentives should
accelerate the growth of Islamic banking activities in North Africa from current
low levels, according to a new report published by Standard & Poor's Ratings
Services titled "Prospects For Islamic Banking In North Africa Improve Following
The Arab Spring." 

Islamic banking started to emerge in North Africa in the 1970s when Egypt was 
among the first countries in the Arab world to authorize the establishment of 
pioneer Islamic banks. However, the sector is still branded as a niche market 
in the region, with an overall market share well below 5% of total banking 
assets. We think the change in political landscape following the Arab Spring 
should rekindle the development of Islamic banking in the region. 

In the meantime, we see financial incentives for developing Islamic banking in 
the region. An increase in Islamic banking activities should help alleviate 
some financial pressures that North African countries currently face. For 
instance, it could promote banking penetration and intermediation, and broaden 
access to funding sources for banks, corporates, and sovereigns. 

That said, we believe progress may only be gradual, taking at least two to 
three years before market penetration markedly improves. This is because these 
activities require a solid foundation to develop successfully, namely a stable 
political environment, clearly defined legal and supervisory frameworks, and 
marketing initiatives to attract and retain customers.

Still, we believe that North African regulators and product developers should 
be able to build on the development of this field in other parts of the world. 
Assuming that imported solutions are endorsed by local Sharia scholars, this 
cross-fertilization should help the Islamic banking industry become more 
sophisticated and integrated globally.


The report is available to subscribers of RatingsDirect on the Global Credit 
Portal at www.globalcreditportal.com.  If you are not a RatingsDirect 
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 
or sending an e-mail to research_request@standardandpoors.com. Ratings 
information can also be found on Standard & Poor's public Web site by using 
the Ratings search box located in the left column at www.standardandpoors.com.